Saudi Arabia: KSA – The Premier Hub For Startups In MENA By 2030

Last Updated: 14 January 2020
Article by Jean Abboud

Context

One of the key strategic aims of Saudi Arabia's Vision 2030 is to shift its oil-dependent economy to a knowledge-based economy.

This multifaceted endeavor involves an extensive web of interweaving projects, initiatives and funds geared towards achieving this ambitious and important aim.

Vision 2030 has identified the proliferation and success of small and medium businesses ("SME") as a vital element in Saudi Arabia's economic objectives of job creation, technological innovation and the boosting of exports.

One crucial strand of this drive is the championing of startups across KSA. Significant efforts have been put into cultivating the successful incubation of, and investment in, startups.

There has been a corresponding explosion of interest in the tech startup space, with investors speculating an imminent boom of entrepreneurialism in KSA. With a myriad of new tech startups vying for attention and investment, the circumstances seem ripe to launch KSA onto the forefront of the Middle East and international stage in this field.

And this renewed focus isn't just aimed at Saudi entrepreneurs. Commencing with the easing of business procedures and the announcement of the MERAS platform and the introduction of a special entrepreneurship license, this plethora of strategic initiatives continue to drive KSA forward as an increasingly competitive business environment.

Initiatives

To facilitate these aspirations, much needed regulatory, policy and procedural reform have accelerated at an unprecedented rate.

One cornerstone in the efforts to support SMEs was the creation in 2016 of the Small to Medium Enterprises General Authority (SMEA) known as Monshaa't. This authority's mandate is to organize, support, develop and sponsor the SME sector in accordance with best global practices, and includes reviewing existing regulations, removing barriers to accessing finance, and aiding startups and SMEs by lending their significant marketing power. The authority also extends support via incubator partnerships, training facilities and venture capital. In essence, a 'one-stop shop' for SMEs in KSA.

One major hurdle for tech startups in KSA has been an inability to raise initial seed investments, due to the lack of available funding opportunities. Angel investment in Saudi Arabia is also a fledgling area.

Therefore, the Saudi Public Investment Fund, among the largest sovereign wealth funds in the world, has very recently, in December 2019, launched JADA a SAR 4 billion ($1.07 billion) 'fund of funds' project to support SMEs by investing in venture capital and private equity funds, consequently improving access to capital.

In addition, the governmental budget for 2020 has been announced with continued emphasis on funding SME's and entrepreneurs.

Furthermore, upon a Council of Ministers' decision dated December 2019, a program to secure financing for SMEs supervised by Monshaa't was established. The program capital shall be determined with the approval of the Prime Minister, together with the Minister of Commerce and Investment (MoCI), Monshaa't and the Minister of Finance.

Additionally, a technical committee shall be formed in the Ministry of Finance from the Ministry of Finance, the Ministry of Civil Service, the Ministry of Commerce and Investment (MoCI), the Saudi Arabian Monetary Agency (SAMA), the Saudi Industrial Development Fund (SIDF) – which is the financial wing of the Saudi government – and Monshaat, to develop an implementation plan to transfer funds – including current capital – and labor contracts, agreements, rights and existing obligations granted under the SME Fund Guarantee Program known as 'Kafalah' – which is a Monshaa't program – and the Saudi Industrial Development Fund (SIDF), to the program.

On another note, a law related to government procurement from local manufacturers was recently passed. This law gives preference to local SME's and companies listed in the financial market in government purchases. Local SME's was defined in the law as any company with at least 50% Saudi capital.

This regulation focuses on several policies and mechanisms to prefer local manufacturing, including the preparation of a list of products to be purchased from national manufacturers and the creation of an online portal for local SMEs to apply for procurement. Most importantly, the regulation gives SME's a price advantage of 10 percent compared to other entities.

This commitment to a high percentage of local manufacturing will directly impact the development of SME's in the kingdom and will lead to an increase in foreign investment and more importantly to a knowledge transfer from foreign companies to local SME's.

In addition to these laws and initiatives, Monshaa't has announced a host of strategic initiatives including the launching of a government-owned venture capital entity – the Saudi Venture Capital Company (SVC). This fund is worth SAR 2.8 billion ($0.75 billion) and it will invest this directly into startups.

The creation of entities such as government-owned Saudi Venture Capital (SVC), and MiSK Innovation is also incredibly useful. The latter is a division of Saudi Arabia's non-profit MiSK Foundation to develop learning and inspire leadership skills among young Saudis.

MiSK Innovation promotes several programmes including the MiSK 500 MENA Accelerator Program and the Misk Growth Accelerator. These initiatives further endeavor to reposition KSA as an increasingly fertile ground for startups looking for expert advice, heavyweight support and easy entry to these markets.

Ease of access to markets is incredibly important for those exploring establishing a new business. In only the past year, KSA has witnessed a complete overhaul of the bureaucratic processes which previously governed the creation of a new business entity. These new systems dramatically reduce the time taken to set up a new business.

Summary

Establishing KSA as the premier breeding ground for startups in the region is an achievable yet challenging undertaking.

The enormous funds and effort already invested in the pursuit of this objective are highly indicative of the seriousness of the Saudi government in accomplishing this goal.

Although KSA's comparatively restrictive social and cultural standards make it challenging to attract the best international talent, the increasingly attractive business landscape will make it difficult for foreign investors to say no. Furthermore, the substantive support network that has been established for Saudi bred startups suggests it won't be long before new home-grown entities are also competing at an international level.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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